Effective 1 January 2021, the VAT rate charged on municipal waste recycling has been reduced from 21% to 15%. The new item, CZ-CPA “38.3 - Municipal Waste Recycling; Secondary Raw Materials," is now included in the amended VAT Act. The list of services subject to the first reduced VAT rate has been expanded for this item based on an amendment  stating that the reason for the reduced VAT rate is, in particular, the need to support the recycling industry and thus to help achieve the EU’s higher recycling targets, which arise from the transposed directives.

Regarding this change, the GFD issued information no. 12199/21/7100-20116-050822, in which it points out that the first reduced VAT rate of 15% applies only to the municipal waste recycling service and not to the mere sale of secondary raw materials, which – based on VAT principles – is a supply of goods and not a service provision. Therefore, there has been no change in the VAT rate (21%) charged on supplies of secondary raw materials effective 1 January 2021. The Czech Statistical Office’s upcoming explanations will help in deciding which code of the CZ-CPA classification to use.In case of any uncertainty or ambiguity as to which VAT rate should be charged on a taxable supply, it is still possible to use the institute of a so-called binding assessment (Section 47a, Section 47b of the VAT Act).

Furthermore, the GFD’s information defines the term "municipal waste" in connection with the new Waste Act (Act no. 541/2020 of Coll.). The VAT Act does not explicitly define the term "municipal waste," not even by referring to other legislation.  According to the GFD, up until 31 December 2021 municipal waste was understood to mean, for the purposes of the VAT Act, waste defined in Section 4 (b) of Act no. 185/2001 of Coll., on waste, as amended, i.e. “all waste that is generated in a municipality by the activity of natural persons and listed as municipal waste in the Waste Catalog, except for waste generated by legal entities and natural persons authorized to conduct business activities.”

Effective 1 January 2021, Act no. 185/2001 of Coll., on waste, has been replaced with Act no. 541/2020 of Coll., on waste, that in Section 11 (2) (a) defines municipal waste as follows: "mixed and sorted household waste, in particular paper and cardboard, glass, metal, plastics, bio-waste, wood, textile, packaging, electrical and electronic equipment, batteries and accumulators, bulky waste, in particular mattresses and furniture, as well as mixed waste and sorted waste from other sources, provided that it is similar in nature and composition to household waste; municipal waste does not include waste from production, agriculture, forestry, fishing, septic tanks, sewer and wastewater treatment plants, including sludge, end-of-life vehicles or construction and demolition waste.”

Therefore, the change in the definition of municipal waste in the Waste Act before the GFD issued the information may have given the impression that the first reduced tax rate of 15% also applies to the collection and transport of waste of business entities, provided that it is similar in nature and composition to household waste.

However, the GFD’s new information refutes this assumption. According to the GFD, it is necessary to interpret the term "municipal waste" in compliance with the European law because of the high degree of VAT harmonization in the European Union. The GFD believes that in the Euroconform interpretation, municipal waste means just household waste generated by households’ usual non-business activities (Annex III (18) of Council Directive 2006/112 / EC on the common system of value added tax).The new definition of municipal waste in the Waste Act effective 1 January 2021 cannot be used to interpret the term “municipal waste” for the purposes of the VAT Act.The aforesaid shows that there has been no change or expansion of the application of the first reduced VAT rate effective 1 January 2021 because of the new definition of the term “municipal waste” in the Waste Act.

The Ministry of Finance’s interpretation of payments for the disposal of medicinal products handed over by natural persons also concerns the VAT rate on waste disposal. Pursuant to Act no. 378/2007 of Coll., on medicinal products, pharmacies are obliged to accept unused medicinal products handed over by natural persons. Pharmacies then hand such medicinal products over towaste disposal companies for professional disposal. Natural persons pay nothing for the handover of their medicinal products, and pharmacies are not obliged to pay anything to waste disposal companies. The regional city hall or the city hall of the capital city of Prague reimburses waste disposal companies for the cost of waste disposal. Since waste disposal companies provide this service for payment, it means that it is subject to VAT. According to the CZSO classification, it is a service that falls under CZ-CPA 38.22.29 Disposal of Other Hazardous Waste. According to Annex no. 2 to the VAT Act, the activities listed under CZ-CPA 38.2 are also subject to the reduced VAT rate of 15%, provided that they concern municipal waste. For VAT purposes, municipal waste means all household waste generated by households and their members as part of their usual non-business activity, which also includes unused medicinal products. This means that the disposal of unused medicinal products handed over by natural persons - non-entrepreneurs – is subject to a 15% VAT rate.

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